Death or Taxes?

Since at least Daniel Defoe’s 1726 work The Political History of The Devil, we’ve come to associate death and taxes with the concept of certainty. [Note: Mr. Defoe is not a confirmed relation of mine – though I would certainly claim him if I could.] Indeed, Benjamin Franklin adopted Defoe’s premise in a 1789 letter to Jean-Baptiste Leroy when he wrote: “…dans ce monde, il n’y a rien d’assure que la mort et les impôts” – In this world, nothing can be said to be certain except death and taxes.

Both Defoe and Franklin use the conjunctive “and” (or, for Franklin, “et“). But what if we could decouple these two maladies and see ourselves clear to the disjunctive “or” (or “ou”, as the case may be)? In essence, this question underlies part of a highly contentious issue being considered today by highest civil court in Scotland.

Apparently, Scotland has something of a drinking problem. According to data from Scottish Health Action on Alcohol Problems, which is funded in part by the Scottish government, “alcohol kills six people in Scotland every day.” To be sure, this claim is made in the kind of breathless tone which appears calculated to grab the reader’s attention. I’ve had some bad hooch, but never been served a drink which was deadly.

But the underlying science, while perhaps less salacious, is nevertheless meaningful. SHAAP-cited studies show that alcohol plays some role in the deaths of six Scots every day, whether through disease processes, auto accidents, violent crime, etc. And SHAAP points out that in most cases, the relevant risk of illness or death is “dose-dependent” – meaning that the more you drink, the higher your risk of becoming one of those six ex-Scotsmen.

So the death part of Franklin’s maxim is well-represented here. Drink enough and death is (relatively) certain. What about the taxes? That’s where the Court of Session is going to step in.

In 2012, the Scottish government passed legislation that put into place a minimum price for all alcoholic beverages calculated on a per-unit basis. This is similar (though not precisely the same) to what LCBs in several U.S. states and a few Canadian provinces have in place – but this would be the first time that a national government put such an arrangement into place.

The whole concept is a bit confusing, so let me explain. For our purposes, a “unit” is 10 milliliters of pure alcohol (i.e., 10 milliliters of liquid measured at 200 proof). The legislation requires that all alcoholic beverages be sold at a minimum price of 50 pence (roughly $0.72 as of the date of this post) per unit. While somewhat counterintuitive, MUP has the effect of most dramatically increasing the price of products with relatively lower ABV but which are priced very cheaply – so the price to the consumer of a case of inexpensive but relatively strong beer may increase by over 100% while the price of a bottle of whisky may rise by only 5% – largely because the whisky was already at a higher price point. Minimum unit pricing has the feel, therefore, of a regressive tax; the cheaper your drink, the more your price will increase.

The Court is being asked to consider the legality of the legislation, which was challenged by the Scotch Whisky Association in a complaint filed with the European Commission back in 2012. The Association asserts that the legislation is illegal because it will artificially distort the market for alcoholic beverages (thereby violating the laws of the EU). Plus, the Association asserts that it won’t actually reduce heavy drinking, and instead simply penalizes responsible drinkers by forcing them to pay more for their hooch of choice.

Are they right? Well there appear to be good data to suggest that when alcohol is more expensive people tend to buy less of it. [In fact, the histrionics of the Association suggest that they anticipate the legislation will have exactly this result.] If you buy less alcohol that means that you will presumably drink less alcohol, which gets us back to that “dose-dependent” concept above. The theory is that the more expensive the alcohol, the fewer ex-Scotsmen we should expect from alcohol-related causes. That’s where the disjunctive issue comes in. Maybe, at least with respect to alcohol, certainty can be found in either death or taxes, but if the taxes are high enough to reduce consumption then the likelihood of death may decrease.

The astute among you may point out that minimum unit pricing is not, strictly speaking, a tax. And you would be right; HoochLawyer acknowledges a certain literary sleight-of-hand for purposes of the analysis. MUP is not a tax, and the pricing increases which will be imposed under the legislation (if it is ultimately allowed to proceed) will not automatically be passed along to the authorities and will instead become profits of the producers. But let us not be mistaken; from the standpoint of the consumer they will be identical to a tax. From the standpoint of the producer, however, the increased profits will also come on a per-sale basis, and if we believe that MUP will reduce consumption then those per-sale profit increases will be offset (at least in part) by reduced actual sales. But more to the point, assume for the moment that the effect of MUP-based profits is not offset by a reduction sales, and producers are suddenly flush with new profits. Do we really believe that the taxing authorities will not seek to share in that bounty?

Feels like Franklin’s use of the conjunctive may have been correct after all.

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Published by Brian B. DeFoe

A business lawyer with an emphasis on assisting clients in consumer-facing industries, especially hospitality and retail. I have a keen appreciation for spirits, especially single-malt scotch whiskies (the peatier the better, please) and robust bourbons.
I live on Bainbridge Island, Washington with my wife, three sons and an ever changing menagerie. My practice is based out of Seattle.
View all posts by Brian B. DeFoe